A dynamic model considering consumer smart preferences and financial subsidy

Abstract

Purpose This study aims to address the uneven diffusion of artificial intelligence (AI) technology innovation across market segments with varying consumer smart preferences and the inefficiencies in financial subsidy allocation that restrict firms’ optimal pricing and investment decisions. Design/methodology/approach A dynamic optimization model and simulation system are constructed to jointly integrate consumer smart preferences with financial subsidies, thereby capturing their interactive effects on firms’ strategic decisions during technology adoption and diffusion stages. Findings The results identify optimal combinations of consumer preferences and subsidies. For core enterprises, the interaction exhibits a U-shaped profit response, where moderate levels of both factors enhance profits through demand stimulation and cost sharing. For peripheral enterprises, the effect is inverted U-shaped: subsidies increase profits in low-preference markets but may reduce profits or even cause losses under high-preference conditions. At the macrolevel, the joint effect reveals an inverted U-shaped relationship with social welfare. Research limitations/implications This study has several limitations. First, the assumption of uniformly distributed consumer preferences oversimplifies market stratification and heterogeneity. Second, modeling subsidies as immediately effective neglects policy delays and funding lags that may weaken short-term incentives. Third, the model is calibrated to China, so institutional and market differences may limit global generalizability. Practical implications The findings guide firms to design precise AI innovation strategies, encouraging core enterprises to leverage subsidies for sustained innovation while prompting peripheral firms to adopt differentiated approaches rather than over-rely on subsidies. Social implications The results emphasize the need for policymakers to formulate optimized and inclusive subsidy policies that prevent resource misallocation, enhance welfare and ensure balanced technological development. Originality/value By jointly analyzing consumer smart preferences and financial subsidies within a dynamic framework, this study provides novel insights into heterogeneous subsidy effects across enterprises and contributes to aligning innovation incentives with long-term sustainability goals.